Credit Repair Options

Credit Repair Services

Consumers looking for relief from debt and hoping to improve credit ratings often turn to consumer credit counseling services for guidance. Many of these services provide excellent resources and strategies for reining in runaway debt but all credit repair services are not equal.

Services offered by either of the three largest nonprofit consumer credit counseling associations are free to consumers and are fairly and ethically regulated. These service providers are members of either the National Foundation for Credit Counseling, the Association of Independent Consumer Credit Counseling Agencies, or the American Association of Debt Management Organizations.

One of the most popular credit repair services these associations offer is the debt management plan (or program), or DMP. A DMP helps consumers gain control of their finances using three main approaches:

Debt consolidation - Under a DMP, the consumer makes just one monthly payment to the counseling service instead of many payments on many accounts. The single monthly payment amount is determined after the counseling service has negotiated lower monthly payments from all account holders. The single, combined, monthly payment is almost always lower than the sum of all individual payments the consumer has been struggling to pay. Once paid each month, the counseling service divvies up the payment and distributes it to the creditors in the plan.

Lower interest rates - Monthly payments to multiple accounts usually involve various rates of interest. This interest adds up dramatically and is often the reason a consumer finds debt out of control in the first place. Various interest rates are consolidated as just one rate of interest in a DMP. Since single monthly payments in a DMP are usually smaller than total multiple payments made directly to creditors, the consumer saves on both principle and interest.

Past-due accounts can be made current - A process known as re-aging, or curing, removes the delinquent status from accounts under a DMP, a situation that brings a more favorable credit rating to the consumer. For example, a consumer who is three months behind on an account will earn a poor credit rating. Under a DMP, those three months of delinquency status will be erased and the creditor will report to consumer credit reporting agencies that the consumer is now current for the account in question. The money owed will not disappear but the payment status has been dramatically improved.

Under a re-aging situation, the consumer can expect to make several months of payments on time before credit reporting agencies are notified of the consumer’s enhanced status. Federal law restricts how often a consumer can ask for re-aging so it is a wise idea to be certain payments can and will be made as promised once a re-aging arrangement has been made.

Controversy surrounds the DMP status of consumers. Some lenders consider the plan a positive sign that the consumer is actively pursuing a more responsible financial life while others view the DMP as a sign the consumer is too weak to accomplish routine bill paying by him- or herself. When entering into this, or any other credit repair services, the consumer must weigh all personal and financial details carefully and thoroughly for the best results.